In view of Godrej Boyce Mfg Co 328 ITR 81 (Bom) Rule 8D is applicable only prospectively i.e. from AY 2008-09 and not for earlier years. The facts showed that the assessee had made the investment in shares out of its own funds and the borrowed funds were entirely utilized for the purpose of its business. The investment in shares in the current year was made from a separate bank account where the surplus funds generated in that year were deposited. The argument that the assessee could have utilized its surplus funds in repaying the borrowings instead of investing in shares and by not doing so, there was diversion of borrowed funds towards investment in shares to earn dividend income is not acceptable in view of CIT vs. Hero Cycles Ltd 323 ITR 518 where it was held, distinguishing Abhishek Industries 286 ITR 1 (P&H), that if investment in shares is made by an assessee out of own funds and not out of borrowed funds, disallowance u/s 14A is not sustainable. Accordingly, the disallowance of interest on borrowed funds was deleted

While volume of transactions is an important indicator of the intention of the assessee whether to deal in shares as trading asset or to hold the shares as investor, it is certainly not the sole criterion. The AO’s conclusion that since sale and purchase had been determined by the volatility in the market, the same is against the basic feature of investor is not based on sound rational reasoning. A prudent investor always keeps a watch on the market trends and, therefore, is not barred under law from liquidating his investments in shares. The law itself has recognized this fact by taxing these transactions under the head “Short Term Capital Gains”. If the AO’s reasoning is accepted, then it would be against the legislative intent itself

The claim of the assessee that it is entitled to tax credit u/ss 90 & 91 in respect of the foreign taxes as well as a deduction u/s 37(1) is not justified and results in a double unintended benefit. On facts, while the assessee paid US Federal Income-tax @ 35% of Rs 35 crores and claimed deduction u/s 37(1) which resulted in tax advantage of Rs 13 crores being 38.5% of this amount, it also claimed tax credit of Rs 35 crores against its Indian income-tax liability despite the fact that the profits were not taxed in India owing to deduction u/s 80HHE. The result is that for a payment of US taxes of Rs 35.01 crores, the assessee claimed tax relief of Rs 48.49 crores in India. Even if tax credit was denied in cases where s. 80HHE was eligible (as done by the CIT (A)), the assessee would still get an effective advantage of 38.5% if it was granted a deduction u/s 37(1). This results in incongruity

As Colin Davie was not a performer, his income was not covered under Article 18 of the DTAA but was covered by Article 7 and as the services were rendered outside India and there was no PE, the same was not assessable to tax in India. Even under the Act, by virtue of Carborandum Co 108 ITR 335 (SC), Circular No. 17 of 1953 dated 17.7.1953 & Circular No.786 dated 7.2.2000, commission paid to agents for services rendered outside India is not chargeable to tax in India and there is no obligation to deduct tax u/s 195

Prior to the concept of dematerialisation, a valid pledge of shares could be created by delivery of the shares to the pawnee either physically or constructively. With respect to demateriaized shares, though s.12 of the DP Act provides for the manner of creating a pledge, this is not the only method. Dematerialized shares continue to be “goods” and the law laid down in the Companies Act and the Sale of Goods Act for deciding whether a sale of shares has taken place or not will continue to govern

The argument of the revenue on the basis of Gee Vee Enterprises 99 ITR 375 (Del) that non-making of inquiry by the AO is sufficient to justify action u/s 263 is not acceptable in view of the later decision in Vikas Polymers (Del) where it was held that the fact that the AO has not applied his mind to the issue may mean that the order is erroneous but it does not necessarily mean that the order is also prejudicial to the interests of the revenue. The CIT should apply his mind to the information provided by the assessee in the course of the revisional proceedings and record a finding instead of simply remanding the matter to the AO for examination